Aicpa Byline Made Easy

Aicpa byline

hello and welcome to the session this is Professor for hat in which we would look at CPA exam questions that deal specifically with ethics on the auditing section of the CPA exam this topic is also covered in an auditing course as always I would like to remind you to connect with me on LinkedIn if you haven't done so YouTube is where you would need to subscribe I have 1,700 plus accounting auditing tax finance as well as Excel tutorial if you like my lectures please like them share them subscribe to my youtube if they benefit you it means they might benefit other people share the wealth connect with me on Instagram on my website for had lectures calm you have additional courses in supplemental material to pass your CPA exam for example today would look in at ethics if you want to learn more about ethics check out my auditing course where I talk about this topic in details also I have supplementary material to help you add 10 to 15 points to your CPA exam so you can put it behind you and pass the exam so let's take a look at the first question according to the rule 101 of the AICPA code of Professional Conduct independence will be impaired if a firm does which of the following independence is very important for auditors so you want to make sure you know the rules when does when is your end when is your independence is impaired it means you lost your independence its meaning you lost your credibility as far as the audit is concerned so under what circumstances your independence is concerned is compromised or impaired one report to the board on behalf of management well here's what you need to know about independence well guess what you cannot be appearing or you cannot perform any operational or financial decision on behalf of management here's what's happening here you report to the Board of Directors on behalf of management that's on behalf of management you'll do in the management work that's it that's an operational thing so one will definitely impair your independence so we keep a we keep C Wiki D we can take out B because b does not have one - makes operational but not financial decision no no it's both operational and financial you cannot make so two would also impair your independence if two will impair your independence then one is out because it doesn't include two so we are left with is we just have to find out if three it does impair or it does not impair your independence so the answer is C or D performs non-attached services for an audit client can you perform non past services what's the non-attached services let's assume it's tax can you perform back services well under certain circumstances you can you might have to get the pre-approval of the from the audit committee but you can do non-attached services without compromising your independence therefore three does not does not necessarily impair your independence therefore the answer will be 1 in 2 the insert will be d because 3 is does doesn't impair your independence okay and remember you have to be very careful for 3 the non-attached function cannot involve any operational or financial decision and what happened under those none at fast services usually the board of directors or the audit committee usually the Audit Committee will have to approve it would have to approve it but it's not prohibited under certain circumstances it is allowed the first three principles of the AICPA code of professional conduct our responsibility public interests and what's the third one is basically this is a memory a memory memory memory issue is it independence is it objectivity is it integrity what does it do care they're all Power Authority of the Year code of conduct but which one the first three and the first three are responsibilities public interests in integrity basically you have to maintain the public confidence you have to perform your responsibilities as professional person as an auditor with the highest sense of integrity notice integrity integrity means doing the right thing doing what's right okay independence and objectivity they're also part of the code of conduct but that's part four and due care is part five so they're all part of the of the AICPA code of conduct which is something you have to be familiar with and this is what I talk about in my on my website for head factors comm I explained this topic to help you understand plus your CPA course will help you do that as well but it's something that you need to be familiar with before you set for the exam according to the AICPA that and the PCAOB standard which of the following loans in the amount of 20,000 institution audit client to a CPA with with impair independence again independence something very important that's why I have you know couple questions about this a cash advance of 20,000 collateralized by money market deposit in the same financial institution of 27,000 to simply put they gave you $20,000 but you already have at that bank account that cash deposit of 27,000 that is so the loan is collateralize can you do that and the answer is yes it doesn't impede your independence because you have the collateral against that money so a is out once a is out B is out because the all of the above so now you're down to 50/50 B auto loan of 20,000 from a financial institution or the client made under normal lending policies can you do that if you're auditing a comp if your only thing a financial institution could you still get an auto loan under normal lending policies yes not a problem as long as they are not treating you differently usually the auto loan the loan usually the car usually is a collateral too so that's not a big deal that's also out so by process of elimination C is the answer but let's take a look at C cash advance same thing as a from a financial institution of 20,000 to be repaid within 10 10 days and here the amount is a problem cash advance of 20,000 will would impair your independence 10,000 you would have been fine you would have been fine so it has to be lowered and 10,000 okay so you just have to memorize this that it has to be lower than 10,000 therefore see will will impair your independence as an auditor let's take a look at this question which of the following bodies ordinarily would not have would not have the authority with not they don't have the authority to do what to suspend or revoke your CPA license because eventually you're gonna get the license to practice public accounting now my question to you is this who grants you the license who grants you the license the state some spirit some jurisdiction under your state so let's take a look at this one a state CPA Society so here you have to be very careful I just said a state and this insert has the word state so would not have the authority you'd say they would have the authority because it's a state well you have to be very careful those state CPA Society like for example I am a part of P I see PA the Pennsylvania Institute of Certified Public Accountants that's a that's a state CPA Society that's basically a social organization it promote professional professional networking it will help me get my CPE credits to maintain my license we have gathering we have committees but it doesn't it doesn't have the authority to revoke or suspend my license so the CPA Society don't have that authority which is that's what they're asking therefore a is a potential answer C is a potential answer B and D are out because they're asking us which of them cannot do it cannot do it the state CPA state society can do it and what I suggest you do since we're talking about this whether whatever state you are in so if you're in new york new york cpa if you are in california see a CPA join those organization even before becoming a CPA they do have a student student chapter so make sure you join them this is where you go and you need actual CPAs you network if you're looking for a job you grow your professional network and you get to know people and they will tell you what they're looking for in future CPAs and you would learn about the industry as well so I strongly suggest you check out your state CPA Society which is I'm part of the PR P I CPA so they can do that too ai CPA so rather than Pennsylvania this is the American AICPA do they have the authority to revoke your license if the answer is yes then that's an answer of the answer is no I'm sorry if the answer is yes they can that's not the answer of the answer is no then to is a correct answer can they revoke so what does the what does the AICPA do for one thing you need to know they write your CPA exam okay that's one thing that they do they also conduct hearing in case you violate the AICPA code of Professional Conduct now this sounding like they can suspend or revoke your license and the answer they cannot they can hold the hearing take you out of the AICPA as a member of they want to but they cannot suspend or revoke your CPA license they can make a recommendation to someone to do so but they can do it if the I CPA cannot revoke your license to practice they can kick you out of the organization but that's not suspending your license that's also a professional organization also they do have a student edition I strongly suggest you join that as well so to is also a correct answer why because they can those two cannot cannot cannot revoke your license okay so obviously we have the last one so - so basically - is the answer we don't have one two three it seems it's a but let's just make sure a State Board of Accountancy and the answer is yes remember when you apply for your CPA when you apply for your CPA you apply under state jurisdiction therefore the state itself you apply with the State Board of Accountancy of a particular jurisdiction well if they grant you the license they can take it away from you therefore the State Board of Accountancy has the has that power therefore the first two those two don't have that power in the answer which one don't have the power it's one and two if they ask you if the question asks which one has the tower three has the power so you have to be very careful don't have the power and on the CPA exam you don't want to you don't want to miss what's an easy question like this one let's take a look at this question a CPA is not allowed to have a fee contingent upon results in which of the following engagement what is it fee the contingent basically pay me based on performance that's basically what a fee contingent is and here is they're asking us which one you cannot you cannot have that contingency think okay well let's take a look at let's take a look at the first answer examination of prospective first of all let's let's let's in general you wanna know the rules in general you cannot do an audit and say you Allah well I'll give you a pay me based on my audit opinion how for me you know this you can do that same thing with reviews so audit and reviews because one is a one is a positive one is a negative assurance you can't you can you can't so all the interviews I'm telling you if they appear anywhere in the question you can't do that okay oh so yeah well we'll talk about this okay so that's wanna make sure you know this right away one examination of prospective financial statement also that's prohibited clearly profited you cannot examine mean prospective it means future financial statements what the financial statements and get a contingency because you might biased your opinion therefore one is that is not allowed so one is not allowed we keep a we keep C Wiki D we can take out be okay because one is not allowed but a view of historical financial statements I told you but reviews you have to be independent in a review okay so we need one in two so one in three is out because two so we're still now between a and B three filing an original tax return form 1040 well can you file a tax return original therapy we have to we have to be very careful here it's an original tax it's an original tax return can you file original tax return and tell the client look just pay me base on the refund I can get you in the answer you can't do that because now you have every incentive to get them the highest refund and that may push make you push the envelope lose your integrity because your fee is based on that original return therefore you can't have that as well we can't have that as well so for all three you cannot you cannot have a fee contingent now you have to be very careful here because the language is important now what happened if you are examining if you are helping them you only owed your reference representing the client on a previously filed tax return being audited by the IRS so somebody filed a tax return originally it's being audited by the IRS they hired you to represent them can you charge can you charge a fee if you're representing them in the answer is yes remember if you are representing them on a previously filed return not original original is out that's being audited by the IRS you tell them look I will help you now I'm gonna have to fight it hand-to-hand combat with the IRS whatever I can get you I'm gonna get it I'm gonna get a piece of it because now what's happening you're doing the work and the I somebody at the IRS is questioning everything that you're doing so now you have every incentive to work on behalf of your client and based on that refund or based on the lower tax bill that the IRS will send you're gonna you're gonna get a portion of it you have the right to do so but not based on the original return and if it was rather than a review if this was a compilation okay remember if it's a compilation of financial statement and they are expected to be used by by a third party and you let them know that you like independence that's okay so compilation as long as you disclose in the compilation that you like independence and it's being used by a third party you can charge a contingent fee but not with a review not moving all that not with the original tax return not with an examination of prospective financial statements very important to know these rules again what I do I'm gonna I'm gonna suggest I'm gonna invite you to go into my auditing course on my website for Hat Watchers calm if you want to learn more about this topic as well as many other topics whether it's an auditing advanced accounting governmental intermediate you name it finance courses additional resources for your CPA exam look you're gonna study for your CPA exam once in your lifetime it's a lifetime investment they could seriously study hard good luck and stay safe if we're still going through this coronavirus